In This Article:
Technology offers some of the best investing opportunities today -- as well as some of the biggest potential pitfalls. New technologies such as cloud computing, AI, self-driving cars, and the Internet of Things have mouth-watering long-term growth prospects. Of course, with such opportunities often come stretched valuations, and if a company hits a roadblock, the ensuing sell-off can be brutal.
One of the best ways to figure out which trends are hot is to listen to the conference calls of companies with broad tech exposure. At the top of the list is Microchip Technology (NASDAQ: MCHP), helmed by CEO Steve Sanghi. Microchip sells microcontrollers, analog, and field-programmable gate array [FPGA] chips to an extremely broad set of customers -- especially since its acquisition of Microsemi last spring.
Because of its reach, Microchip gets an early look at demand trends in tech, often highlighting which sectors are growing and which are troubled well before others in the industry feel it. Here's what Sanghi and management had to say on Microchip's recent conference call with analysts.
Tech investors can learn a lot from Microchip's conference calls. Image source: Getty Images.
Results strong, but next quarter will be difficult
Microchip reported a better-than-expected third quarter. Non-GAAP revenue of $1.52 billion beat expectations by $10 million, and non-GAAP earnings per share of $1.81 beat expectations by $0.08. But for the December-ended quarter, Microchip projects revenue to decline sequentially to $1.36 billion to $1.44 billion, and earnings per share to decline to $1.49 to $1.64.
The expected weakness next quarter is particularly telling. Microchip, like competitor Texas Instruments (NASDAQ: TXN), derives a majority of its sales from the automotive and industrial segments. According to the company, the automotive segment is being hurt by delays in emissions testing in Europe (causing production bottlenecks) as well as weak demand in China. Meanwhile, trade-war-fueled tariffs have led to widespread caution across the industrial segment.
On the bright side, data center and cloud computing continue to be strong, along with the smaller aerospace & defense and communications segments.
So if you're invested in the automotive industry, especially with exposure to China and Europe, things may be a little dicey over the next few quarters. However, cloud data center companies seem likely to continue their strong trend.
When will the downturn end?
Sanghi explained that Microchip gets a particularly early look into demand trends: "... numerous times in the past we have seen the impact of industry events about three, four months ahead of [when] the others see it. ... And now on the other side, we always come out earlier."